Semiconductor comeback on the horizon

Yasmine Raso

Senior Journalist, Financial Newswire

25 October 2022

New market analysis from Global X ETFs Australia has revealed the current dip in the semiconductor industry has not shaken investors but rather allowed them to prepare for its impending recovery.

Blair Hannon, Global X’s Head of Investment Strategy, has flagged the semiconductor sector’s contribution to powering future critical technologies, offsetting its current drop in valuations amid wider economic slowdown.

This comes as semiconductor stocks recorded their largest fall since the Global Financial Crisis due to ongoing supply chain disruptions, geopolitical tensions and declining sales. However, Global X said these factors have already been “price in”, which means investors can prepare for recovery soon.

“Semiconductors may be small in size, but they pack a punch when it comes to powering technology and potentially your portfolio. They have even been called the oil of the future,” Hannon said.

“A number of market leaders, including Intel, Nvidia and Samsung recently released September quarter updates detailing falling demand and rising inventories.

“We can expect valuations to start rebounding into 2023 after the next reporting season. This aligns with a range of market analyst expectations which suggest a broader recovery is on the way as central bank rate hikes stabilise and consumer confidence returns.

“Semiconductor also have robust pricing power and higher margins thanks to their specialised nature, which paired with their widespread use in a range of technologies gives the industry notable tailwinds.”

Hannon also said particular businesses in the industry such as chip makers are in preparation mode, anticipating the persistence of declining market conditions. Geopolitical tensions between the United States and China are also blocking semiconductor and advanced chip manufacturing equipment exports, only intensifying industry pressures.

“Investors will likely benefit from blocking out present noise and taking a longer-term approach towards the chip industry. We are seeing increasing investment in semiconductors around the globe to build security in the space,” Hannon said.

“The US for instance, is exploring domestic manufacturing and even Australia is allegedly looking to invest around $1.5 billion to safeguarding local supply as demand is set to rise.”